Pacific Investment Management Co.’s Bill Gross said a “debt trap” remains even after European leaders reached an agreement intended to alleviate concern that the region’s banks will fail.
Appearing on “Bloomberg Surveillance” on Friday, Gross (left) said PIMCO continues to avoid the debt of nations including Spain and Portugal in favor of U.S. Treasuries and mortgage securities.
“The peripherals and even the core union nations have too much debt,” Gross said. “The marginal cost of that debt is far above nominal GDP growth in respective nations. That continues a debt trap unless the cost of debt can come down.”
As the news service noted, “five-year notes of Spain, with $935 billion of debt and an 8.5% deficit, yield 5.5%. The nation’s gross domestic product is forecast to shrink 1.7% this year and 0.5% in 2013.”
The debt deal, which came on Friday after about 19 similar summits since the start of the debt crisis (with few results), called for countries that use the euro to allows two European bailout funds to aid European banks directly, rather than make loans to governments to bail out the banks. It also begins to move European countries further toward a common fiscal policy by linking their budgets and governments.